Commercial Real Estate; Selling Like Hot Cakes?

“For every thing there is a season” – Ecclesiastes or Pete Seger, take your pick.  The saying is true as all things go in cycles, especially business.  Investments such as the stock market and real estate are constantly changing. Just when you get to thinking that you are an investment wizard, the cycle cranks around again and you find that you aren’t so smart after all.

This lesson has once again been vividly spot lighted since the last half of 2007 and so far in August 2008. When this slow down portion of the cycle will start to turn towards the upward swing is still not very clear.

Mortgage brokers and agents are dropping out of the field like flies.  Companies are closing up right and left leaving vast empty office suites in their wake.  Some entire buildings in Orange County have become see through buildings just like we used to have in the 1970s and in portions of the 1980s.  Cars, steaks, trips and cash are being offered as inducements to lease an office space. 

One would think that Orange County commercial real estate is dead, dead, dead.  Interestingly enough, it isn’t.  Just try really low-balling a price on some investment property and you will be shocked to find that the seller may not even take the time to respond to you.

Sure prices have come down from those 12 or 18 months ago.  However, they haven’t plunged and the properties have not wound up in banks REO inventory.  Sellers are hanging tough, at least so far.  They aren’t panicing and they aren’t selling or leasing at just any price.

One could say that commercial real estate in Orange County is selling like hot cakes.  Sure, maybe like hot cakes at a Weight Watcher convention, but still selling.  Sellers will cut a deal that gives the buyer a small cash flow but that is really all that has happened.  Owners are convinced that Orange County real estate has tremendous intrinsic value and they aren’t giving it away.  After almost a year of soft sales and tough financing issues, prices are still hanging in there.  At this point I don’t think things are going to change very much in the future either.

I haven’t seen any indications that sizzling deals are soon to follow.  Commercial properties have been sold with fairly large down-payments in order to get the property financed, unlike single family homes.  This gives owners a solid cushion of safety before their properties start running negative.  Right now it looks like it is more likely that the properties will become hot again rather than the deals will become sizzling.

The question to ask oneself is where else other than real estate would you rather invest your money for the long run?  Where else would you rather have your money invested if inflation really kicks up again?  From the looks of the commercial marketplace in Orange County, the answer is clearly real estate.

Tags: commercial marketplace., inducements to lease, inflation, Investments, low-balling a price, orange county real estate, real estate cycle, real estate. commercial real estate, REO inventory, running negative, sizzling deals